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Australian Dollar Sinks After China Trade Data

The Australian dollar edged lower on Wednesday in Asia as a weaker-than-projected trade data from China added pressure on the Reserve Bank of Australia to reduce interest rate to boost growth.

China is Australia's biggest trading partner and the key export destination for its mining rich industry. Therefore, a weak Chinese trade figures would reduce demand for raw materials from Australia.

China posted a merchandise trade surplus of $27.1 billion in June, slightly below expectations for a surplus of $27.8 billion following the $20.42 billion surplus in May.

Exports were down 3.1 percent on year, well below estimates for an increase of 3.7 percent after adding 1.0 percent in the previous month. Imports dipped an annual 0.7 percent versus forecasts for a jump of 6.0 percent after easing 0.3 percent a month earlier.

The Australian dollar has been trading lower since yesterday after the International Monetary Fund warned that China and other emerging economies face new risks "including the possibility of a longer growth slowdown''.

In an update to its World Economic Outlook on Tuesday, the IMF slashed its global growth forecast for a fifth consecutive time, citing slowing growth in the emerging markets and lingering risks, mainly from the Eurozone crisis.

The Washington-based lender forecast the global economic growth at 3.1 percent this year, which was less than its April projection of 3.3 percent, but equaled last year's growth figure. In 2014, the world economy is seen expanding 3.8 percent, which is also slower than the 4 percent forecast in April.

The 2013 growth forecast for the U.S. was cut to 1.7 percent from 1.9 percent, and the outlook for next year was lowered to 2.7 percent from 3 percent. The 17-nation Eurozone is expected to shrink 0.6 percent this year, worse than the 0.3 percent contraction seen in April.

A speech by Federal Reserve chairman Ben Bernanke and the release of Federal Open Market Committee (FOMC) minutes on Wednesday also prompted traders to move away from risky bets.

Elsewhere, Japan's domestic corporate goods price index was up 0.1 percent to 101.6 on month in June, the Bank of Japan said today, beating forecasts for a flat reading, which would have been unchanged following a revision from 0.1 percent for May.

On a yearly basis, prices jumped 1.2 percent, matching forecasts and up from the downwardly revised 0.5 percent gain in the previous month (originally 0.6 percent).

Japan's tertiary industry activity index was up a seasonally adjusted 1.2 percent in May compared to the previous month, the Ministry of Economy, Trade and Industry said today, standing at 100.8. That topped forecasts for a gain of 0.7 percent following the flat reading in April.

The Australian dollar dropped to 92.28 against the yen and 0.9131 against the US dollar immediately following the China data, down from Tuesday's closing values of 0.9175 and 92.80, respectively.

The aussie that finished Tuesday's trading at 1.1687 against the New Zealand dollar and 1.3924 against the euro slipped to as much as 1.1648 and 1.3991, respectively.

If the aussie extends downtrend, likely support levels are seen at 0.9090 against the greenback, 91.70 against the yen, 1.1650 against the kiwi and 1.3810 against the euro.

Looking ahead, Japan's consumer confidence index for June is slated for release at 1:00 am ET.

Germany's final inflation figures for June is the lone major data due out in the European session.

The U.S. wholesale inventories for May is the major economic report due in the North American session ahead of the Fed minutes and Bernanke's speech.

by RTT Staff Writer

For comments and feedback: editorial@rttnews.com

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